Consumer advocates target gift cards wrapped with hidden fees

Robert Sciarrino/The Star-LedgerTwelve-year-old Victoria Shahinian holds a prepaid debit card which was a gift from her aunt. She did not use the card right away away surprised to lean that each month there is a fee for non-use, and now the card is worth nothing. Also, the company allegedly asked for personal information, including a Social Security number, to activate the card.

Hidden fees and unnecessary charges to prepaid debit cards will be the Grinch who stole Christmas this year. But now consumer advocates are determined to do something about it.

U.S. Sen. Robert Menendez (D-N.J.) will introduce a bill in the Senate over the next two weeks and is talking with the Consumer Financial Protection Bureau to target hidden costs of debit cards and demand more transparency, he announced yesterday. The bill will include a ban on fees for overdrafts, balance inquiries, customer service, inactivity and account closures.

Companies also would be required to explain fee structures and offer protection on the card against loss, theft or bankruptcy of the company. Menendez is simultaneously asking the consumer agency to regulate the card industry.

"We believe (a prepaid card) leaves consumers in a bad position, and a significant chunk of money goes to fees instead of the purchases they want," he said. "Predatory practices should raise a red flag for all of us, especially budget-weary consumers who are trying to make ends meet during these difficult economic times."

In the last six months, constituents have written Menendez dozens of letters complaining about the cards, he said.

Catherine Shahinian of Oldwick stood with the senator at a news conference yesterday and warned other consumers about the dangers of the cards. Shahinian and her daughter, Victoria, were featured in a Star-Ledger "Bamboozled" column about their travails last month after Victoria received a suspicious prepaid card for her birthday.

"Be careful shopping with these things," Shahinian said. "You think you’d be able to go in and use it as cash, and that’s not the case."

The market for prepaid cards is estimated to top $427 billion, according to Menendez.

Activation fees can range from no fee to nearly $40, but the median cost is about $10, according to Consumers Union.

Some companies also charge monthly or annual fees or require a minimum deposit, and charge for a variety of card information.

"It’s important that we start to create some baseline protections that apply across the entire marketplace," said Chuck Bell, programs director at the Consumers Union.